Rainmaker research prepared for theHeraldandThe Ageanalysed the past three high-profile super fund mergers – Hostplus/ClubSuper,EquipSuper/Catholic Super and SunSuper/Austsafe.
In all three cases,overall fees charged to members dropped by between 10 per cent and 30 per cent.
Merger discussions have grown amid the COVID-19 pandemic.
"While previous mergers used to present fairly unconvincing cases that mergers really stacked up from a fees perspective,these latest premier mergers show the opposite,"said Alex Dunnin,senior researcher at Rainmaker.
"In all cases there's a clear value-add,"he said."And the most value-add goes to the fund that was taken over."
Smaller super funds whose members are employed in specific industries – such as transport or nursing – have strong connections with their members and can offer tailored products,including life insurance,that matches the risk profile of their jobs.
First State Super is about to become the pin-up fund for mergers. It's in talks with WASuper and will finalise the takeover of VicSuper at the end of this month,making it the country's second-largest fund with more than $125 billion in funds under management.
First State chief executive Deanne Stewart acknowledges that size really does matter.
"Size and scale will matter increasingly,"Stewart says."It will be the ability to drive down fee costs for members. If you're not able to do that,you'll be out of the market."
However,she insists consolidation is not about becoming the biggest fund,rather finding a point of difference. Stewart has sought out funds with an older membership and an average balance hovering around $100,000,so it can boost its presence in a market that is often overlooked – retirement.
"Our vision is to be the most trusted choice for super retirement and advice,"she says.
Members don't have to lift a finger after the First State/VicSuper merger and will see admin fees magically drop by 20 per cent next month,a figure Stewart says will only continue to fall.
On the downside,VicSuper members wanting a full statement of financial advice will now be charged an additional $300 but the fund's chief executive Michael Dundon says this impacts less than 100 customers and brings fees in line with the industry standard.
It's a small concession for access to better investment managers and greater scope to see returns rise in future,he says.
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Merger discussions have grown amid the COVID-19 pandemic and the federal government's early access to super scheme for fund members suffering financial hardship has put a strain on fund cash buffers. Industry insiders expect more merger announcements to be made by the end of the year.
A successful merger is much like a romantic relationship – it rests on finding the right partner. Do they have similar goals? Interests? Strategies?
Dundon says the answer to these questions for VicSuper is"yes"and that is why the First State merger will be a hit."You're not mixing oil and water,you're mixing two successful funds,"he says.